The Affordable Health Care Act: What to Expect in 2014

By Ronda Wendler

Texas Medical Center News

Nearly all Americans will be required to have health insurance effective Jan. 1, 2014, as mandated by the Affordable Care Act.

To examine how this requirement and other provisions in the Affordable Care Act will affect consumers, companies, clinicians and others in 2014, Rice University’s Baker Institute for Public Policy hosted a June 28 presentation by Vivian Ho, Ph.D., a professor of economics at Rice University and a professor of health services research at Baylor College of Medicine. Titled “The Affordable Care Act: What Can we Expect in 2014?” the presentation addressed some of the highlights of what Ho says is a “very complex piece of legislation.”

“Simply stated, the Affordable Health Care Act is a law designed to provide affordable, quality health care to all Americans and to reduce the cost of health care to individuals and to the government,” Ho said. “But as we all know, nothing is ever that simple. A great deal of confusion still exists in terms of what the act does and what it does not do.”

Signed into law by President Barack Obama in March 2010, the Affordable Care Act is widely acknowledged as the most significant government expansion and regulatory overhaul of the U.S. health care system since the passage of Medicare and Medicaid in 1965.

For a standing-room-only audience, Ho streamlined and simplified some of the act’s main points, and shared what their impact will be on different Americans in 2014.

The Uninsured

Those without health insurance are required to have it or buy it by Jan. 1, 2014, or face a penalty. The penalty will be $285 per family or 1 percent of income, whichever is greater. By 2016, the penalty increases to $2,085 per family or 2.5 percent of income.

According to the U.S. Census Bureau, more than 40 million Americans lack health insurance, often because they are part-time workers, unemployed or self-employed, or they are full-time employees whose employers don’t provide coverage. On Oct. 1 this year, these uninsured Americans will be able to shop for insurance through new, state-run health insurance exchanges created under the Affordable Care Act.

All 50 states must create an exchange, which Ho says is like a big shopping mall, with individual insurance stores inside. Consumers “visit” each store, and compare all the different insurance plans offered through the exchange, then select the one that best suits their needs and the needs of their families.

“The exchanges will serve as an insurance marketplace, a one-stop-shop for those who do not have employer coverage and are looking for private coverage,” Ho said.

A state may operate its exchange on its own, share operational functions with the federal government, or allow the federal government to operate the exchange within the state. Texas chose the latter option, and the federal government will operate Texas’ exchange.

All 50 state exchanges must be operational by Oct. 1, 2013 to begin open enrollment for the 2014 plan year.

The government will provide subsidies to low- and middle-income Americans to help them buy insurance through these health exchanges – the individual pays a part of the insurance premium, and the government pays the rest.

Americans who earn between 133 and 400 percent of the federal poverty level are eligible for these subsidies. The 2013 federal poverty level is defined as an income of $23,550 a year for a family of four.

“Even a family of four earning $88,000 per year qualifies for a subsidy, because they are under 400 percent – the highest percent allowed – of the federal poverty level,” Ho explained.

The closer to the federal poverty level a family falls, the larger their subsidy.

Families making less than 133 percent of the federal poverty level will be funneled into Medicaid – the federal-state health insurance program for those with low income and resources – and therefore will not need to purchase insurance through an exchange.

However, the Supreme Court ruled that individual states can opt not to go along with the 133 percent eligibility level expansion that goes into effect Jan. 1, 2014, but instead can continue receiving existing levels of Medicaid funding from the federal government.

Texas is one of the states that has chosen to continue with its current funding levels and eligibility standards.

A Gallup poll released this March placed Texas’ uninsured rate at 28.8 percent. The Texas Health and Human Services Commission said if the state had said yes to Medicaid expansion, an additional 1.5 million Texans would be covered by Medicaid by 2017.

For those states that do agree to expand Medicaid, the federal government will pay 100 percent of the cost of Medicaid expansion from 2014 to 2016, then ratchet its share down gradually to 90 percent by 2020, with states picking up the difference.

Health insurance for senior citizens does not change under the Affordable Care Act. Seniors ages 65 and above receive Medicare, and may choose to purchase supplemental insurance if they wish.

Health plans bought through exchanges will be deemed platinum, gold, silver and bronze, and will cover 90, 80, 70 and 60 percent of approved medical costs, respectively, with the patient paying the rest out of pocket.

To offer an idea of what such plans will cost, Ho says that a 40-year-old single person on the Silver Plan who makes above 400 percent of the federal poverty level and therefore does not get a subsidy, and who operates his or her own business in northern California will pay $347 per month. California is often used as an example, Ho said, because it is ahead of other states in setting up exchanges.

The Already Insured

Under the Affordable Care Act, insurance companies are no longer allowed to set an individual’s premium cost based on gender or health status. The act also prohibits insurance companies from dropping coverage or capping coverage for people who develop long-term illnesses or disabilities – a measure that has already been in existence in some states, and now should offer peace of mind to many more, Ho said.

However, policies purchased through a health exchange are allowed, under the Affordable Care Act, to cost three times more for an older person than a younger person.

“Currently, older individuals are charged about four or five times higher than younger people,” Ho said. “The new three-to-one ratio will likely cause premiums to go up for younger individuals.”

The new law also requires insurance companies to cover the children of insured parents up to age 26 – this provision went into effect in 2010, the year the act was signed into law.

Pre-Existing Conditions

Starting in 2014, the law makes it illegal for any health insurance plan to use pre-existing conditions to exclude, limit or set unrealistic premium rates on coverage for adults – the requirement to cover children under age 19 for pre-existing conditions began in 2010.

Employers

Employers in the United States are not currently required by law to provide health insurance coverage to employees. However, the Affordable Care Act changes that, by requiring employers with 50 or more workers to provide those workers with affordable and adequate health coverage, or face fines.

That provision was set to go into effect Jan. 1, 2014, but on July 2, the Obama administration pushed it back by a year. The delay resulted from business groups’ complaints that the law was too complicated and they needed more time to update technology and to plan how they would offer health coverage to employees without yet knowing how much the coverage would cost. Like individuals, businesses can also purchase insurance policies through state exchanges for their employees, but not all state exchanges are in place yet.

“It makes sense to delay the employer requirements for one year, until employers and policymakers can see what insurance policies are being offered on the state exchanges,” Ho said.

Businesses with fewer than 50 workers will be exempt from providing health insurance to their employees, and those employees likely will look for private insurance on state exchanges. Most large businesses already offer coverage to their employees because they can afford to do so and because insurance coverage is an expected employee recruitment tool.

Other key parts of the law remain on schedule.

When the delay concludes and employers must provide their employees with health coverage, larger employers won’t be affected as much, but middle-sized firms with 100 to 1,000 employees will likely experience a price increase in providing coverage for their employees, Ho said.

“This is mainly because many of these companies didn’t offer health insurance,” she explained, “or they offered health insurance that had extremely high deductibles and didn’t cover many standard services.”

Small firms with 100 or fewer employees will likely experience a decline in the amount spent on each employee’s coverage, she said.

“A lot of people don’t realize there are actually subsidies available for small employers – especially for those with 25 or fewer workers – to purchase health insurance,” Ho said, “and that will make it more affordable for these small companies.”

Insurers

The Accountable Care Act dictates that your insurance company must spend 85 percent of your premium on your medical care, and only 15 percent on other things, such as advertising and administration. If insurers exceed this threshold, they have to rebate the excess to their customers.

Policies sold in the individual and small group market will increase drastically in price, insurance companies warn, due to this and other provisions in the Affordable Care Act.

The U.S. House of Representatives’ Committee on Energy and Commerce recently sent a survey to insurance companies in Texas asking how much those companies planned to raise their premiums in 2014 for individuals purchasing new plans. The insurance companies responded that they plan to raise premiums 96 percent more for those getting a new policy, and 73 percent more for those who already have an individual health insurance policy which they plan to keep.

“I’m always skeptical of these kinds of ‘what if…’ numbers,” Ho said. “I think there’s a good chance some people will pay more, but I’ll be surprised if people on the individual market pay values like this because I think there’s going to be a fair amount of competition on the exchanges.”

Premiums will cost less in a state that has a large number of insurance companies participating in the state’s exchange, Ho said.

“For example, California already has 13 insurance companies signed up for its exchange, so competition among those 13 will keep prices lower,” Ho said. “Maine only has two companies on board, so competition will be less and prices will be higher.”

A few factors that will drive up premium costs, she said, are the requirement to issue polices to high-risk individuals, the elimination of male and female gender pricing, and limiting the amount an older person pays for his or her policy to no more than three times the amount a younger person pays (compared to the current four or five times more).

Restaurants

Larger chain restaurants must list calories under every menu item.

Physicians

Doctors who have solo practices or practice in a small group will experience the greatest financial pressure, Ho said, compared to doctors who are part of a large practice, those who are affiliated with a medical school, or those who are “hospitalists” – physicians who work strictly in a hospital to care for that hospital’s inpatients.

“Accountable care organizations where a large number of specialists in the same group provide all of a patient’s care under one roof, are squeezing out private-practice physicians,” Ho said.

Bundled payments, or “package pricing,” where physicians and hospitals are reimbursed on the basis of expected costs for clinically defined “episodes of care,” are also squeezing out solo and small-group practitioners who traditionally are paid for each individual service they render to a patient, Ho said.

Primary care providers who treat Medicaid patients will receive additional reimbursements from the federal government in order to encourage doctors and hospitals to treat the influx of new Medicaid patients. Medicare reimbursements will remain similar in the near term, but will increasingly reward doctors and hospitals who can demonstrate that they provide high-quality care at reasonable costs.

What’s The Cost?

The net cost of implementing the Affordable Care Act is expected to total $1.36 trillion in the next decade, according to the Congressional Budget Office.

“Expect higher taxes if you’re in a high-income bracket,” Ho said.

Pharmaceutical, medical device and insurance companies will also bear a greater tax load, and health care providers will be tasked with improving the way medical care is delivered, which the Congressional Budget Office predicts will result in cost savings.

“The truth is, we just don’t really know how much it will cost until we’re in it,” Ho said. “Some experts say the gloom-and-doom predictions of what the Affordable Care Act will cost are overblown – one Harvard study says the projections could be too high by $714 billion a year. Others say the predictions are on the low side.”